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Why FARO Technologies, Inc. Shares Are Crashing Today

Its preliminary results fell well short of expectations.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of specialty 3D scanning company FARO Technologies (NASDAQ:FARO) traded down more than 25% on news that the company's first quarter revenues will be significantly lower than expected.

So what: In the first quarter, FARO now expects to generate sales of approximately $70 million, representing a 5% annual decrease over 2014 results. Prior to the preliminary release, the Wall Street consensus had anticipated FARO would generate over $85.4 million in sales.

Management cited three major areas that contributed to the revenue shortfall:

Strength of the U.S. dollar relative to the Yen and Euro, which it estimates affected revenues by $7 million.

Weakening macroeconomic conditions in Japan, coupled with a limited release of manufacturing stimulus funds from the government, which together decreased overall industrial demand.

Weaker industrial demand in Brazil as a result of recent macroeconomic events in the region.

Excluding the $7 million impact from foreign currencies, FARO believes that its first quarter sales would've increased by 5% year over year. Unfortunately, this adjusted growth still falls short of the company's long-term target of mid-teens revenue growth, and can be largely attributed to lower than expected metrology unit sales.

On a positive note, management expects that the company's Focus laser scanner will experience unit growth upwards of 20% year over year in the first quarter, and the recently introduced handheld Freestyle scanner is receiving strong market reception.

Now what: According to CEO Jay Freeland, FARO is taking action to improve its operating efficiency, and will lower costs without impairing its ability to grow. The details of these initiatives, along with more color on why FARO's first quarter earnings fell short of expectations, will be made available on April 29 before the market opens, during the company's regularly scheduled earnings conference call.

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